Historical Sketch

During World War II, Germany initially occupied and dominated most of continental Europe, but was finally defeated by the Allied forces. In May 1945, all Germany was occupied and divided into four zones under control of the victors. The reconstitution was triggered by the reconstruction of the economy in the United States and British zones of control, creating the so-called "Bi-Zone", soon including the French zone as "Tri-Zone". The Soviet zone remained apart as it got economically aligned with the socialist block. In 1949, the split became final as the three Western zones merged into the Federal Republic of Germany (FRG) while in the Soviet zone, the German Democratic Republic (GDR) was proclaimed. The downfall of Communism and the dissolution of the Soviet Union triggered the unification of the two German states. In October 1990, the constituent states of the GDR joined the FRG so that the Democratic Republic disappeared while the Federal Republic was enlarged.

Monetary History Overview

In post-war occupied Germany the currency situation did not change, the Reichsmark continued circulating. The Allied command of the four zones suspended the defunct official rate against the US Dollar in May 1945 but did not define a new rate instead. Only in May 1948, a new peg was re-instated by the authorities of the United States and British "Bi-Zone", tacitly adopted by the French authorities, without extent to the Soviet zones. In June 1948, the Allied Military Authorities of the three Western occupation zones of Germany carried out a currency reform, followed by the Western Allied zones of Berlin three days later. This triggered an immediate currency reform in the Soviet occupation zones of Germany and Berlin to prevent the massive inflow of worthless notes. The currency exchange began on the same day as in the western zones of Berlin. Provisional banknotes were issued and, like in the western zones, the Reichsmark currency was converted at 10%, with both cash and deposits being confiscated above a threshold value. A month later, regular banknotes of the newly established German Currency Bank were issued and the provisional notes withdrawn within three days. The German Democratic Republic (GDR) Mark became the new national currency. The level of confiscation in the Soviet zone was lower than in the Western zones, but in 1957, a second confiscation was carried out when new banknotes got introduced. In 1953, the Mark got pegged to the Soviet Ruble. Beside the over-valued official rate parallel rates were created in the late 1950, the so-called "Valuta-Mark", on par with the currency of the Federal Republic, was applied to trade with hard currency economies. In early 1968, the State Bank of the GDR took over the central bank role, otherwise the monetary situation did not change until the end of the communist rule in 1989. In preparation for the unification of the two German states in 1990, an economic and monetary union was established between the Federal Republic (FRG) and the Democratic Republic (GDR) that led to the introduction of the Federal Republic's currency in the GDR in July 1990, three months before unification, and the on par exchange of the German (GDR) currency. Deposits above a threshold were cut by 50%, and the former banknotes and coins were demonetized immediately.

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